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Sheeple




26 September 2014

More alarm bells than GFC

An analysis of 16,000 annual reports has revealed nearly a third of Australia’s listed companies are fragile and at risk of financial catastrophe.

Analysis of almost 16,000 annual reports by the professional accounting body CPA Australia, shows there are more alarm bells ringing now than during the depths of the global financial crisis in early 2009.

The research, conducted between 2005 and 2013, says the red-flagged companies are exposed to the dual risks of end of the mining investment boom and an unexpected slowdown in China.

The CPA study is based on the snowballing of “going concern” warnings from auditors which are used to flag “significant uncertainty” in a company’s ability to survive.

CPA Australia chief executive Alex Malley told the AM program the findings were a sobering reality check that many Australian companies are fragile.

“We’ve been talking about the potential impacts of the slow-down in China, the strength of the Australian dollar and the effects of the tapering mining boom on the economy for some time,” he said.

“Now, this report, compiled based on virtually all companies listed on the ASX, shows these economic factors are being felt across the market and are putting almost a third of ASX listed companies at risk of financial catastrophe.

“It really begs the question how our economy would be placed were we to face another shock like the GFC?”

According to the research, the “going concern” warnings has risen significantly in the energy and mining sectors with more than 40 per cent of companies feared to be at risk in 2013.

The report comes as evidence mounts that China’s economy is slowing faster than expected and that the official growth target of 7.5 per cent might not be achieved this year.

Australian miners are exposed with the iron ore price now at a fresh five-year low of US$79.80 per tonne.

However, the CPA report says non-mining sectors such as consumer staples, industrials, healthcare and utilities are also facing concerns about their financial health and how they would fare in another global shock.